July 13, 2011

Some Facts About the Debt Ceiling and Housekeeping

• No other country has a debt ceiling. (Martin Wolf from Financial Times called the debt ceiling "ridiculous" just now on BBC Radio 4. But this is an opinion, so it's going in parentheses.)

• The debt ceiling was invented in 1917, as a way to provide cover for President Wilson to issue Liberty Bonds to pay for WWI. (And it's been used for political purposes ever since, though not as drastically and cynically as today.)

• Congress has voted 74 times since Kennedy was president to raise the debt ceiling.

• Mitch Daniels, Republican governor of Indiana and former George W. Bush budget director, once called raising the debt ceiling mere "housekeeping" and urged Congress to do so, despite the hesitations of some Democrats, including Barack Obama. Congress did raise the debt ceiling (without too much grumbling) 7 times during the Bush administration.

• The debt ceiling was not raised during the later years of the Clinton presidency because there was no need to: The Clinton administration ran budget surpluses, thus paying down long term debt. (And Clinton also created 22 million jobs, but that's another parenthetical political point.)

• The Bush tax cuts that Congress recently voted to extend, even though they were about to expire, cost $4 trillion. Currently, the debt ceiling needs to be raised about $2 trillion in order for the government to continue to pay its debts.

• US debt grew 50% between 2000 and 2007.

• The Republican budget plan, passed by the House of Representatives in April, would require the debt ceiling to be raised.

• The U.S. currently pays the lowest interest rate in the world on its debts. That's because everyone wants a piece of it, because it's considered the safest in the world. (Sort of like your FICO score, which allows you to borrow at a lower interest rate if you've proved you always, always, pay your debts.)

• In a recent survey, 70% of small business owners predicted a negative impact for their businesses if the debt ceiling weren't lifted. (Could this be why hiring fell in June?)

• U.S. taxes are at the lowest level as a percentage of GDP since the 1950s. (Yet Republicans have flat refused to raise any taxes at all during the negotiations they've insisted on having over raising their debt ceiling.)

• If the debt ceiling is not raised, ("housekeeping", remember) among the dire consequences will be an increase in interest rates to the current US debt (the bond market), which, remember, are the lowest in the world.

• Currently, debt payments are the fifth largest item in the federal budget, behind defense spending and entitlements like Medicare and Social Security.

• If the debt ceiling is not raised, interest rates on consumer debt, including mortgages, will likely rise—during a "technical default" in 1979 interest rates rose by .6%, and stayed up.

• If the federal government cannot spend money it's contractually obligated to beyond August 2, some 45% of federal expenditures will cease. No one knows how the Treasury department will decide to allocate the money it can pay out, but bond holders will be the first to be paid (see above).

• If the debt ceiling is not raised, companies will likely hoard money (even more than they are now) and people who depend on a federal salary or Social Security check will start eyeing the cat food.

In summary, the debt ceiling is a meaningless construct invented to provide political cover to a long-dead president for a war that many thought at the time wasn't worth fighting. Today, the consequences of not lifting it are dire, yet Republicans are holding the debt ceiling as a hostage in a crass political attempt to lower the size of the federal government while refusing to even consider a single tax increase, despite the fact much of the debt occurred on their watch, or as a result of the Great Recession, which began on their watch and continued into the early months of the Obama administration.

Are we clear now? All this fuss is over "housekeeping", and as it turns out, if the debt ceiling is not raised many of us won't be keeping our houses.

Comments

• No other country has a debt ceiling. (Martin Wolf from Financial Times called the debt ceiling "ridiculous" just now on BBC Radio 4. But this is an opinion, so it's going in parentheses.)

• The debt ceiling was invented in 1917, as a way to provide cover for President Wilson to issue Liberty Bonds to pay for WWI. (And it's been used for political purposes ever since, though not as drastically and cynically as today.)

• Congress has voted 74 times since Kennedy was president to raise the debt ceiling.

• Mitch Daniels, Republican governor of Indiana and former George W. Bush budget director, once called raising the debt ceiling mere "housekeeping" and urged Congress to do so, despite the hesitations of some Democrats, including Barack Obama. Congress did raise the debt ceiling (without too much grumbling) 7 times during the Bush administration.

• The debt ceiling was not raised during the later years of the Clinton presidency because there was no need to: The Clinton administration ran budget surpluses, thus paying down long term debt. (And Clinton also created 22 million jobs, but that's another parenthetical political point.)

• The Bush tax cuts that Congress recently voted to extend, even though they were about to expire, cost $4 trillion. Currently, the debt ceiling needs to be raised about $2 trillion in order for the government to continue to pay its debts.

• US debt grew 50% between 2000 and 2007.

• The Republican budget plan, passed by the House of Representatives in April, would require the debt ceiling to be raised.

• The U.S. currently pays the lowest interest rate in the world on its debts. That's because everyone wants a piece of it, because it's considered the safest in the world. (Sort of like your FICO score, which allows you to borrow at a lower interest rate if you've proved you always, always, pay your debts.)

• In a recent survey, 70% of small business owners predicted a negative impact for their businesses if the debt ceiling weren't lifted. (Could this be why hiring fell in June?)

• U.S. taxes are at the lowest level as a percentage of GDP since the 1950s. (Yet Republicans have flat refused to raise any taxes at all during the negotiations they've insisted on having over raising their debt ceiling.)

• If the debt ceiling is not raised, ("housekeeping", remember) among the dire consequences will be an increase in interest rates to the current US debt (the bond market), which, remember, are the lowest in the world.

• Currently, debt payments are the fifth largest item in the federal budget, behind defense spending and entitlements like Medicare and Social Security.

• If the debt ceiling is not raised, interest rates on consumer debt, including mortgages, will likely rise—during a "technical default" in 1979 interest rates rose by .6%, and stayed up.

• If the federal government cannot spend money it's contractually obligated to beyond August 2, some 45% of federal expenditures will cease. No one knows how the Treasury department will decide to allocate the money it can pay out, but bond holders will be the first to be paid (see above).

• If the debt ceiling is not raised, companies will likely hoard money (even more than they are now) and people who depend on a federal salary or Social Security check will start eyeing the cat food.

In summary, the debt ceiling is a meaningless construct invented to provide political cover to a long-dead president for a war that many thought at the time wasn't worth fighting. Today, the consequences of not lifting it are dire, yet Republicans are holding the debt ceiling as a hostage in a crass political attempt to lower the size of the federal government while refusing to even consider a single tax increase, despite the fact much of the debt occurred on their watch, or as a result of the Great Recession, which began on their watch and continued into the early months of the Obama administration.

Are we clear now? All this fuss is over "housekeeping", and as it turns out, if the debt ceiling is not raised many of us won't be keeping our houses.